According to Flom, crowding is the effect of separation which hinders the reading, it is a perceptual phenomenon in which recognition of letters presented away from the fovea (centre of gaze) is impaired by the presence of neighbouring letters (see figure 4). Crowding is affected by contour interaction that involves spatial interference and lateral masking (inability to perceive identical or similar objects in proximity).
The reader can experience crowding by fixating in the dot and trying to identify one letter: (top) in isolation (bottom) surrounded by two horizontally placed random flanking letters. It is easier to recognise R at the top as compared to R placed between a set of letters.
As stated by Hughes, the spacing of letters not only affects how easily they may be seen, it also affects their apparent size. Skottun and Freeman studied the spacing between letters and their apparent size in relation to acuity and found that the perceived size of widely spaced letters appeared to be larger than the closely spaced letters of the same size. They suggested that the reason is related to a lateral masking effect, letters that are uncrowded appear clearer and thus may also appear to be larger. In AR text is usually at a distance of at least a meter away and crowding can have a negative impact on the reading experience especially in the case of large blocks of text.
References:  M.C. Flom. Contour interaction and crowding, Problems in Optometry, 1991, 3(2), cited in L. E. Hughes, and A. J. Wilkins, Reading at a distance: Implications for the design of text in children’s big books. British Journal of Educational Psychology, 72, 2002, p. 214.
 E. Hughes, and A. J. Wilkins, Reading at a distance: Implications for the design of text in children’s big books. British Journal of Educational Psychology, 72, 2002, pp. 215.
 B.C. Skottun and R. D. Freeman, Perceived size of letters depends on inter-letter spacing: A new visual illusion, Vision Research, 23(1), 1983